Bitcoin miners on the brink of capitulation facing worst trend in two years
Bitcoin (BTC) mining operations are facing a significant downturn, with the network’s hashrate experiencing its steepest decline since the year 2022. This downward trend began manifesting a few months ago, casting a shadow over the cryptocurrency’s overall security.
Finbold reported on June 14 that Bitcoin miners are in a state of capitulation, with their BTC reserves hitting a two-year low. The report further noted that the average cost of production has surpassed the revenue generated, leading to a scenario where companies are operating at a loss.
The network’s hashrate, a measure of the computational power per second used to mine and process transactions, is on a concerning decline. Data from mempool.space illustrates a pattern of decreasing peaks, with the most recent high reaching 639 EH/s on April 27, followed by two subsequent lower highs.
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*Hashrate & Difficulty Chart. Source: mempool.space*
**The Decline of Bitcoin’s Hashrate: Implications and Expectations**
The industry might anticipate a recovery similar to the one seen during the bear market of 2022. However, on June 27, the hashrate dipped to a new low of 572 EH/s, a figure last observed in March, potentially setting the stage for further declines and significantly affecting Bitcoin’s security.
The hashrate decreases when less competitive miners cease operations or disconnect their mining rigs, known as ASICs. This leads to a gradual centralization among the more affluent miners who can sustain operations in a challenging environment, thereby reducing the network’s security due to a reliance on the proper decentralization and distribution of Proof of Work (PoW).
Bitcoin analyst Joe Burnett echoed these concerns on June 26, indicating that the situation is deteriorating over time.
**Miners’ Dwindling Reserves Amidst Ongoing Sell-Off**
Bitcoin miners are persistently selling off their holdings, with reserves continuing to fall below levels reported earlier in the month. According to Santiment, miners now possess 1.8 million BTC, a result of aggressive selling since February 2024. This reserve is equivalent to the amount held in April 2022 when BTC’s value was under $40,000.
*Bitcoin Supply Held by Miners. Source: Santiment / Finbold (Vini Barbosa)*
Despite the drop in hashrate, the average cost of Bitcoin mining remains above $80,000, as shown by MacroMicro data. This indicates that miners may be capitulating not only by liquidating mining equipment or halting operations but also by selling BTC below the cost of production.
*Bitcoin – Average Mining Costs. Source: MacroMicro*
**The Advantage of Scale in Bitcoin Mining**
Sources with knowledge of the matter suggest that Bitcoin mining is often unprofitable for small to medium-sized players and is generally a challenging business model. To mitigate risks, miners may hedge with energy futures contracts, take on significant leverage, or engage in secondary activities such as selling ASICs or earning mining pool fees. These operations can also provide heat for residential or industrial use.
It’s not widely known, but Bitcoin mining is not a sustainable venture for most, with operations frequently running at a loss. Miners typically resort to one or more of the following strategies:
1. Access to free or low-cost energy.
2. Hedging with energy futures contracts.
3. Utilizing substantial leverage.
These market dynamics favor larger miners who benefit from economies of scale, receiving greater rewards and expanding their operations. Conversely, smaller entities may be compelled to exit the market by selling their BTC reserves or mining infrastructure.
Over time, such developments could lead to increased centralization among a handful of major players, as reported by Finbold.
*Bitcoin Hashrate and Block Discovery Distribution. Source: mempool.space*
Moreover, the selling pressure exerted by these select Bitcoin miners could hinder any potential price increases for BTC unless there is a surge in demand. Concurrently, Bitcoin spot trading and on-chain transaction volumes are at all-time lows, presenting additional hurdles for the cryptocurrency’s future.
